Beyond the beach: Why the Indian Ocean Islands are a hit with investors

Better air connections between the islands of the Indian Ocean and the rest of Asia are set mark a new chapter in higher-end tourism.

July 05, 2017

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The crystal-clear waters and palm-tree fringed beaches of the Indian Ocean islands have long been favorites with well-heeled European tourists.

Now, there’s a growing shift towards the Asian market; better air connections between the islands of the Indian Ocean and the rest of Asia are set mark a new chapter in higher-end tourism.

A recent agreement between Mauritius and Singapore has opened up a new air corridor, allowing Air Mauritius to access the Asia market and Singapore Airlines to fly to Mauritius. Likewise, Air AsiaX now flies directly to the island. Meanwhile, a direct route between Beijing and the Seychelles, launched in 2016, has further fuelled tourism numbers.

“Whilst the Maldives has been a mainstay on the Asian tourism map for a long time, Mauritius and the Seychelles are looking to Asia as the long term growth driver for their tourism sectors,” says Xander Nijnens, JLL’s Head of Hotels & Hospitality in Sub-Saharan Africa.

In Mauritius, Asian arrivals have more than doubled from 2009 to 2015, while the Maldives has become increasingly popular with Mainland Chinese visitors. Mainland China made up about 29.1 percent of total visitor arrivals in 2015, approximately three and a half times that of the second largest source market, Germany. Likewise, the Seychelles Tourism Board’s strategy to focus on Asia to decrease reliance on the European market has led to healthy growth in Indian and Mainland Chinese visitor arrivals in the past five years, Nijnens notes.

Investors eye opportunities

The flourishing tourism industry is drawing in more investors with a particular focus on hotels. “We are seeing increased investor in the region due to the high demand growth in the Indian Ocean resort sector and the buoyant hotel trading outlook. Following on the success of hotel investment in the Maldives, investors are looking at Mauritius and the Seychelles, and further on to markets like Zanzibar and Madagascar,” says Nijnens.

Tourism demand is being driven by the safe and secure status of the Indian Ocean region when compared to other luxury resort destinations. “Occupancy rates have risen from the low-60s to the mid-70s, as demand has drifted from North Africa, Turkey and other destinations into the Indian Ocean,” says Nijnens. “The situation is creating a positive hotel investment environment. With new investors entering these markets, liquidity and transaction volumes are increasing.”

Amid the tourism boom, most of the Indian Ocean destinations are trying to find a balance between volume-focused resorts and exclusive luxury resorts. The Seychelles, for example, recently announced a moratorium on any new large scale hotel supply to ensure that it remains positioned as a premium resort destination.

Widening the investment net

It’s not just the more developed markets that are benefitting. With thousands of kilometers of pristine beaches, cultural offerings and unique natural settings, lesser-known investment destinations such as Zanzibar, Madagascar and Mozambique are catching the attention of big-name hotel brands. Ritz-Carlton is due to open a property in Zanzibar in 2021, and Anantara has been in Mozambique since 2013.

Meanwhile, Madagascar is on the radar for luxury developers, thanks to improved political stability. Access has also stepped up, with the recent announcement of a partnership between Air Madagascar and French carrier, Air Austral with Aeroports de Paris taking on the management of key airports on the island.

The scene is therefore set for further investment interest. “Regional resort operators are still the strongest players in these markets” says Nijnens, “but the international brands are increasingly looking for entry points into the sector given the potential to achieve scale and to capitalise on the long term growth in the Indian Ocean region.”

He is optimistic that this increase in demand for hotels provides a strong rate growth outlook for the Indian Ocean islands. “With new supply relatively limited in most of these markets and longer development periods due to the emerging nature of the real estate sectors, the medium-term profitability outlook in the region is excellent,” he concludes.